The National Rifle Association, facing a cash crunch after pouring money into Donald Trump’s presidential bid, cut spending for the midterm elections that threaten the Republican hold on Congress. NRA Loses Midterm Muscle After Cash Crunch From Big Bet On Trump.

After devoting record sums to help elect President Trump in 2016, the powerful lobbying organization had a sharp decline in working capital last year. The NRA borrowed against life insurance policies on top executives and took out a loan from its philanthropic arm. It also turned to a regional bank to refinance a long-standing credit line that it had almost exhausted from Wells Fargo & Co.

Even after borrowing the money, NRA spending by its lobbying arm in venues like television and radio has plunged this year 86 percent to $1.9 million from the last midterm elections. When this outlay is combined with spending by the NRA’s political action committee, which raises money separately, the $16.4 million total is less than half of what they deployed in 2014. The retreat comes as mass shootings in Las Vegas, Parkland, Florida, and Pittsburgh have made gun control a hot-button political issue in the Nov. 6 elections.

Andrew Arulanandam, the NRA’s spokesman, said changes in the group’s so-called unrestricted net assets, used for political activity and other purposes, are typical and not an indication of waning support.

“Like many organizations, unrestricted assets may fluctuate from year-to-year based upon the needs of the organization,” Arulanandam said in an emailed statement. He added that with 5.5 million members, the NRA is at “the highest levels of membership in our 150-year history.” He declined to provide additional details.

The NRA PAC has focused its independent political spending on a number of Senate races. It has paid out $1.1 million to oppose incumbent Democrat Joe Donnelly in Indiana and almost $667,000 against incumbent Democrat Claire McCaskill in Missouri. It deployed nearly $683,000 in support of McCaskill’s Republican opponent, Missouri Attorney General Josh Hawley.

Threat Recedes

The gun rights movement can be seen as a victim of its own success. Trump’s victory in 2016 pushed off the threat of gun control from Democrats and firearms sales stagnated as potential customers no longer saw the need to stock up on weapons. That hurt gunmakers. Shares of Sturm Ruger & Co. are down about 12 percent since the November 2016 election compared with a 29 percent gain in the S&P 500 Index.

Two years ago, the NRA’s finances began to weaken after the lobbying arm put $34.5 million behind the candidacy of Trump and other Republicans. The group ran a $41 million deficit in 2016 as increased political spending and membership acquisition costs drove total expenditures to $419 million, according to the NRA’s financial statements.

Last year, the deficit grew by $21 million as revenue from contributions and membership dues sank. The $35 million decline in dues — the NRA’s largest source of unrestricted revenue — was particularly significant.

“The worst thing that happens to the gun rights movement is when they are successful politically,” said former NRA lobbyist Richard Feldman, who’s president of the Independent Firearm Owners Association.

Assets Drop

By the end of 2017, the NRA had just $1.48 million of unrestricted assets, down from $65.6 million two years prior, according to the statements. The group warned of a potential funding shortage when it told members earlier this year that their annual dues would rise $5 in August, adding in the notice, “We simply can’t compete in the 2018 elections” without the increase.

Brian Mittendorf, an accounting professor at Ohio State University who studies the NRA’s financial statements, said the group does not appear to be facing an immediate fiscal crisis. But he said multiple years of declining net assets raise concerns: The organization will need to scale down its spending or find new sources of revenue.

The lobby last year turned to a form of credit it hadn’t used since 2011. It borrowed $3.5 million against whole life insurance policies it held as funding for a deferred compensation program for executives and employees, according to the statements.

The NRA also took the step of borrowing $5 million from its charitable foundation last November. While the foundation grants roughly $19 million a year to the NRA, that money can only be used for the same philanthropic activities that the charity supports.

Foundation Loan

The loan represents a way to “slip the bounds” of these charitable restrictions, said Marcus Owens, a partner at Loeb & Loeb and former director of the Internal Revenue Service division that oversees nonprofits. Under U.S. rules, the NRA has more leeway in how it spends its foundation loan as long as it bears interest at market rates and is repaid.

Wilson Phillips, who resigned in September as the NRA’s chief financial officer, described the foundation loan as “a very short-term deal” in an interview in January. NRA financial statements disclosed that its due date was extended from February until June. It remains outstanding, according to regulatory records.

The NRA pays an annual rate of 7 percent for the loan, making it relatively expensive compared with the floating rate of 2.16 percent for the Wells Fargo credit line last year, according to the statements. But the NRA had drawn $23 million on the credit line by the end of 2017, leaving little room for additional borrowings.

In September, the NRA refinanced its line of credit. While Wells Fargo had been renewing the $25 million line for roughly a decade, the NRA’s balance sheet appears to have weakened during the past several years. With the facility set to expire Sept. 30, the NRA switched to a new credit line with Access National Bank, securing it with 18 securities accounts at Morgan Stanley Smith Barney, according to a September filing.

Susan Budak, a consultant on nonprofit accounting who reviewed the NRA’s financial statements, said the group’s liquidity “has eroded. The biggest factor,” Budak added, “is they are pledging cash, investments and receivables as collateral for their borrowing.”

Access National provided the organization with a $3 million increase in the size of the credit line to $28 million, a person familiar with the situation said. Michael Clarke, Access’s chief executive officer, declined to comment on the NRA loan.

The NRA, which has managed through deficits before, won’t release new financial statements covering 2018 until next year.

The best outcome for NRA fundraising, said ex-lobbyist Feldman, would be success by Democrats election night.

“If the Democrats take the House, there will not just be gun control bills,” he said. “There will be hearings. It’s the kind of ink the NRA wants.”

Updated: 4-21-2019

NRA Files Suit Against Ad Agency In Rift With Key Partner

Gun-rights group accuses Ackerman McQueen of refusing to comply with requests to justify its billings.

The National Rifle Association filed a lawsuit accusing its longtime advertising agency Ackerman McQueen Inc. of refusing to comply with demands to justify its billings, an extraordinary public break with the gun-rights group’s largest outside partner.

The lawsuit, filed late Friday, comes amid an unusual battle unfolding behind the scenes at the NRA’s 76-member board, which some say pits a small group of pro-Ackerman McQueen directors against other board members and an outside NRA attorney.

The dispute in part is about how the NRA, with an annual budget of more than $300 million, is spending money during a period when its finances have been tight. The NRA ran at a deficit in its two most recently reported years.

Oklahoma City-based Ackerman McQueen has been the NRA’s ad agency since the 1980s and has been widely credited with helping to transform the NRA from a grass-roots operation to a powerful national advocacy group. In recent years the ad firm has also produced the organization’s NRATV, a video outlet that mainly focuses on conservative and pro-gun rights commentary.

NRA filings show it paid Ackerman McQueen $42.6 million in 2017, the most recent year available, making it by far the group’s largest vendor.

The lawsuit is “frivolous, inaccurate and intended to cause harm to the reputation of our company,” Ackerman McQueen said in a statement. “We will defend our position and performance aggressively and look forward to continuing to serve the NRA’s membership.”

An Ackerman McQueen spokeswoman added that an NRA-hired forensic auditing firm spent three weeks reviewing the firm’s records and was “given every single thing they requested.”

In the lawsuit, filed in Circuit Court in Alexandria, Va., the NRA said Ackerman McQueen was obliged to provide access to records underlying its bills. But since the middle of 2018, it said the NRA’s requests for such documents had been met with partial compliance or “rebuffed or baldly ignored…This situation cannot continue.”

The NRA is concerned the ad firm may be overcharging for certain items, the lawsuit said, such as invoicing for the full salaries of Ackerman McQueen employees who were “allocating substantial time to non-NRA clients.”

The NRA also alleged it hadn’t received complete information about an NRATV contract between Ackerman McQueen and retired Lt. Col. Oliver North, the Iran-Contra figure who became NRA president in May 2018.

Though the NRA president’s post is largely ceremonial, the lawsuit said, Mr. North was hired last year by Ackerman McQueen to host a documentary program on NRATV—“Oliver North’s American Heroes.”

As a nonprofit, the NRA said it must approve and disclose its top officials’ pay. The NRA initially agreed to reimburse the ad firm for costs related to Mr. North’s TV contract, but when the organization later sought contract details, Ackerman McQueen balked and Mr. North for months wouldn’t provide documents without the ad firm’s approval, the NRA alleged.

Attempts to reach Mr. North through his assistant and his attorneys were unsuccessful.

“It’s stunning that a trusted partner for all these years is just refusing to cooperate,” said William A. Brewer III, an outside NRA lawyer. He said Ackerman McQueen is the only vendor resisting the NRA’s push for such records.

Some NRA board members have publicly raised questions about whether the NRA should cut back spending on Ackerman McQueen’s NRATV platform, concerned that much of its content reflects conservative political views not directly related to the group’s core Second Amendment message.

The NRA said in the lawsuit it had sought information on how well NRATV was faring, but claimed Ackerman McQueen refused to provide the NRA with certain requested data in writing, such as unique visitors, “that enable the NRA [to] analyze the return on its investment in NRATV.”

In a Shakespearean twist, the outside NRA lawyer spearheading the lawsuit, Mr. Brewer, is related to Ackerman McQueen’s two top officials, who are his brother-in-law and father-in-law.

Ackerman McQueen said it told the NRA three months ago that the family relationship meant that Mr. Brewer had an “irreconcilable conflict of interest” and that he had “demonstrated, in words and deeds, his animus” for the company and those family members.

The pro-Ackerman board faction also is blaming some of the discord on Mr. Brewer, whose firm, Brewer Attorneys & Counselors, started working for the NRA last year and has since become a major NRA vendor, according to people familiar with the matter.

Mr. Brewer’s firm is representing the NRA in federal litigation against New York Gov. Andrew Cuomo and other New York state officials. The NRA accuses New York of violating its First Amendment rights by warning financial-services firms regulated by the state to avoid doing business with the gun-rights group. The defendants deny the allegations.

The pro-Ackerman McQueen faction, which people said includes Mr. North, has circulated complaints inside the NRA board that Mr. Brewer’s firm is charging unusually high fees—about $1.2 million a month by some internal estimates—and is justifying those in part by exaggerating the risks that New York officials pose to the group, according to the people familiar with the matter.

“I’ve never seen this much agitation on the board,” said Todd Rathner, an NRA board member for 20 years, who said he thinks the dissidents are attacking Mr. Brewer as a way to undermine NRA CEO Wayne LaPierre and “I’m disgusted by it.”

Mr. LaPierre backed Mr. Brewer in a statement released through an NRA spokesman, saying: “I am proud of the essential work the Brewer legal team is doing for the NRA.” He added that all of the law firm’s invoices are closely reviewed by the NRA’s legal and finance departments.

Mr. Brewer defended his fees in an interview, saying “we’re a premium law firm, we make no bones about that.” He also said his firm is doing work for the NRA well beyond the New York litigation. Among its tasks, he said, is helping the NRA respond to numerous congressional demands for records related to its dealings with Russia.

As for Mr. Brewer’s family relationships, his law firm in a statement said that has “no bearing whatsoever on the NRA’s litigation strategy,” calling that argument a red herring.

Tom King, an NRA board member who heads a New York state gun organization, said he backs Mr. Brewer’s legal effort in New York: “However much money it takes is well spent, because it’s for the survival of the NRA.”

Mr. King, speaking before the lawsuit was filed, said Ackerman McQueen has long been “very important to the NRA” and he expects the subject of the firm’s budget to come up at the group’s annual meeting later this month. As for the ad firm’s NRATV content, Mr. King said, “If you took a poll of most board members, they’ll tell you they like NRATV.”